2) Your firm has a credit rating of BBB. You notice that the credit spread for five-year maturity A debt is 200 basis points (2.00%). Your firm's five-year debt has a coupon rate of 6%. You see that new five-year Treasury notes are being issued at par with a coupon rate of 1.2%. What should the price of your outstanding five-year bonds be per $1000 of face value?

3) The prices of several bonds with face values of $1000 are summarized in the following table:

Bond: A B C D

Price: $962.50 $1050.75 $1200.00 $1000.00

For each bond, state whether it trades at a discount, at par, or at a premium.

4) The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of face value):

Maturity: 1 2 3 4 5

Price (per $100 face value): $94.51 $90.05 $84.68 $80.65 $74.31

a. Compute the yield to maturity for each bond.

b. Plot the zero-coupon yield curve (for the first five years).

c. Is the yield curve upward sloping, downward sloping, or flat?

5) What will happen to bond prices in the market if market interest rates rise? The following table summarizes the yields to maturity on several one-year, zero-coupon securities:

Security: Treasury AAA corporate BBB corporate B corporate

Yield (%): 0.9 2.2 3.2 3.8